At last week’s semi-annual meeting of NCM’s divisional directors, 20 Group moderators, Retail Operations consultants, and NCM Institute faculty members a good discussion developed around the topic of Service Advisor Compensation. The common questions that several on our staff were seeking answers for were as follows:
- Has there been any significant change in advisor compensation philosophy over the last three year period?
- How should advisor compensation be budgeted?
- How should advisor productivity affect advisor compensation levels?
- What elements should be included in a well-balanced advisor compensation plan?
Since I was on the panel of which these questions were addressed, I thought the answers we presented might be good fodder for an Up To Speed article.
The first question was pretty easy to handle because it relates primarily to a changing mission within the community of better dealers. Most of the clients with whom we work are attempting to transform their service department staff from a “fix it and smile” organization to a "selling" organization. In so doing, these clients recognize that compensation plans need to be oriented to sales activities and results. There is no longer a place for an “order taker” in the service drive. The mantra now seems to be that for advisors to enjoy the income they’ve previously experienced, they will need to (a) increase their customer R.O. transactional quality, and (b) reduce their customer R.O. transactional quantity. This will result in the need to add more advisors.
As a general rule, those of us at NCM who work regularly within the service department training and consulting arena use 12.0% of department gross (before any parts gross transfer) as our guide for budgeting service advisor compensation. This budget guideline is sometimes a little higher for domestic franchises and a little lower for luxury franchises. However, please understand that budgeting compensation and structuring compensation plans have different meanings; budgeting refers to how much we should pay, while structuring refers to how we should pay.
The relationship between advisor productivity and advisor compensation is critical, and this needs to be clearly defined and communicated when we set expectations and seek to gain commitments. An advisor who has superior transactional quality, superior CSI, and who handles an adequate number of customers could earn as much as 14% of the gross he/she generates. On the other hand, an advisor with below average transactional quality, below average CSI, and who handles a below average number of customers might earn as little as 10% of the gross he/she generates.
The fourth question is the most difficult to answer. I’m going to try talking about how to structure a well-balanced compensation plan without getting myself in trouble. First, I need to say that like any other dealership compensation plan, there is no “one size fits all.” There are numerous reasons for this, including: (a) each dealership, each service department, and each advisor staff might operate within different cultures, and culture certainly has an impact; (b) the dealership franchise might impact the advisor compensation structure; (c) the individual priorities of the dealer principle might impact the advisor compensation structure; and (d) state and local wage and hour laws might impact the advisor compensation structure.
Here are my general recommendations for advisor compensation structure:
- As is my philosophy with most sales compensation plans, the structure should be 100% incentive based, with a reasonable underlying guaranteed draw against commission.
- Since Hours Billed is the force that drives service and parts profitability, the predominant driving force within the plan should be Hours Billed per Individual Advisor per Month, with $x.xx paid for each hour billed, in all labor categories. I have often seen this as a stand-alone compensation metric, but I often see it “matrixed” with either customer effective labor rate, or hours per customer R.O., or both. This category might represent 55% - 70% of the plan structure.
- Achieving acceptable or world class individual CSI Performance is usually the next ingredient in the compensation structure. The advisor should be rewarded for achieving either of these levels. The payment should be quantified as “an additional $x.xx paid for each hour billed (Item 2 above). Depending on how much manufacturer money is tied to CSI, this category might represent 10% - 20% of the plan structure.
- The next category is what we refer to as miscellaneous spiffs and incentives. These are typically defined as the Top 3 Sales Initiatives for the Month and might cover such things as: (a) Parts Sales per Customer R.O.; (b) Customer Effective Labor Rate; (c) Menu Closing Percentage; (d) Tire Sales; (e) Service Contract Sales; (f) MPI (ASR) Closing Percentage. The payment might be quantified as an additional $X.XX paid for each hour billed (Item 2 above), or as a flat amount, or as a per item amount. I normally like to see this category represent approximately 15% of the plan structure.
- The final category is a team incentive based on Percent of Total Monthly Shop Hours Objective Achieved. The intent here is to have all service and parts personnel focused on the same number (total shop production capacity) throughout the month, trying to achieve or exceed full capacity operations. The payment might be quantified as an additional $X.XX paid for each hour billed (Item 2 above) or as a flat amount. I normally like to see this category represent approximately 7% - 10% of the plan structure.
Want to learn more about retail automotive compensation planning? Reach out to your 20 Group moderator or an NCM Retail Operations Consulting coach, or sign up for the NCM Institute’s courses in General Management. Call us at 866-756-2620; we’ll listen and recommend a solution that’s right for you.